The New York Times
India Concern to Design I.B.M. Chips
By SARITHA RAI Published: November 18, 2005
BANGALORE, India, Nov. 17 - I.B.M. announced an agreement Thursday establishing an Indian outsourcing company, HCL Technologies, as the first design center outside I.B.M.'s own walls for its Power Architecture chips.
The deal highlighted India's growing role in the design of high-end chips. The country is better known as a hub for outsourcing of software development and comparatively low-end back-office work.
The agreement is also in line with I.B.M.'s plan to adopt a more open strategy in its microprocessor business by setting up design centers around the world to help customers in areas like wireless technologies, consumer devices and networking by developing customized chips.
At Power Architecture design centers, I.B.M.'s chips are tailored for products as diverse as Xbox game consoles, high-definition TV's and pacemakers.
Traditionally, microprocessors like I.B.M.'s Power chips were optimized by shrinking the size of transistors and fitting more into each chip to increase processing speed.
But with newer, tightly packed microprocessors consuming more and more power, optimization in performance comes from adapting microprocessors to different uses.
I.B.M. has its own Power Architecture design centers here in Bangalore, and also in Israel, China, Japan, Switzerland and Germany besides the United States.
I.B.M.'s agreement comes in the wake of estimates that India's semiconductor design industry is growing, albeit from a small base. The industry will triple by 2010, to about $1.72 billion from $624 million currently, according to a recent forecast by iSuppli, a research firm based in El Segundo, Calif.
"Outsourcing chip design to a low-cost center like India with a large talent pool is a trend of the future," said Jagdish Rebello, iSuppli's principal analyst for communication systems.
As with other types of outsourcing, the availability of skilled, English-speaking workers at lower costs - design engineers in India are typically paid a fourth of American salaries - is prompting chip companies to expand in the country, aided by clearly drawn intellectual property laws.
"The mind-set about what is possible and what is not in India is changing and the country is becoming a development center for products, software and chip design," said Sham Banerji, head of software development for the Indian unit of Texas Instruments, one of the first multinational companies to set up a captive design center in the country.
HCL Technologies, India's fifth-largest technology services outsourcing company, with $814 million in revenue, will pay a licensing fee to I.B.M. for its use of the Power technology and will split revenue with I.B.M. when the technology is sublicensed to others.
"I.B.M.'s goal is to make Power Architecture solutions as pervasive and open as possible," said Ron Martino, I.B.M.'s director of Power products.
The outsourced design center will be based in the southern Indian city of Chennai, a site with 25 employees currently. But company executives said this could grow into a 1,000-employee operation in two years, depending on demand.
The center will offer equipment makers a range of Power Architecture solutions, including sublicensing the Power group of embedded microprocessor cores. Indian companies have progressed in the value chain from doing back-end work to developing architecture, said S. R. Dinesh, program manager in Asia for the electronics practice of the Frost & Sullivan consulting firm.
India's own domestic demand for electronics and consumer electronics is also growing rapidly.
The large number of companies setting up chip design centers illustrates the maturing of the industry in India. Nearly 125 chip design companies are now in India, mainly in Bangalore.
"Every major chip design multinational has set up operations in the country," said Poornima Shenoy, president of the India Semiconductor Association, a trade body representing semiconductor companies.
Ms. Shenoy said there was heightened activity, with semiconductor companies hiring as many as 1,000 graduates in India annually. Chief executives of international technology companies are routinely visiting, she said, "and all this is an indicator that India has moved to the next level."
The Indian development center of Intel, for example, has grown to 2,500 employees from 1,500 at the end of 2004. India is Intel's largest design center outside the United States.
But India does not have manufacturing infrastructure, and experts see this as a drawback to a larger role in the chip design process. The nearest chip foundries are in China and Taiwan.